Measures announced in the federal budget show that the government has an idea of hardships faced by various segments of the society
Measures announced in the federal budget for the year 2021-22 indicate that the government has some idea of hardships faced by various segments of the society. The extent of transparency in the implementation of these measures will determine their final impact. There is something for the poor, for the unemployed youth and for small farmers. Attractive proposals for the general public include Sehat card finance and tax relief for women entrepreneurs. However, these incentives pale in comparison with the reduction in capital gains tax on stocks that will benefit the stock brokers.
As far as the Ehsaas cash programme is concerned one must concede that it has been executed in a fairly transparent manner. However, the programme does not help the poor get out of poverty. The cash transfers are unconditional. There is no oversight on its use by the beneficiary who usually is the head of the family. The cash disbursements started in 2008 by the then PPP government continue to expand every year. It can be argued that instead of expanding it should have been gradually curtailed or the disbursement made conditional. The beneficiary might, for example, be asked to perform some social work, or send at least one girl to school. The disbursement could be subject to at least 80 percent attendance in a month. Such conditional cash transfers are in vogue around the world. Both Brazil and India distribute money with certain conditions.
That said, the Ehsaas programme came in handy for the poor during the Covid-19 pandemic. Most of the poor were unable to earn their living during restricted economic activities. Many daily wagers and low-income employees still make much less than the pre-Covid days. The disbursement has been mostly transparent. Some of the non-deserving beneficiaries registered in the past have been removed from the rosters.
By improving governance and implementing policies fairly, transparently and impartially the government can promote economic activity and reduce poverty. Interest-free loans have been in vogue for over a year but the criteria for loan distribution are unclear. The state apparently lacks expertise to verify the feasibility of the projects proposed by the credit seekers.
Loans are sanctioned mostly in view of political consideration and generally speaking the unemployed youth are not so keen on obtaining these loans. There is an impression that many loan seekers are deterred by bribes extorted in sanctioning of these loans. The lack of transparency is alleged in all schemes where the state offers assistance to the poor. It is virtually impossible to prove that some rent has been paid in obtaining the loan. The farmers getting interest-free loans are said to be similarly exploited. We know that informal loans are available at 30 percent interest. In theory an interest free loan saves the poor beneficiary this burden. The government has to evolve a transparent mechanism to ensure that the loans are granted for feasible projects.
The introduction of Sehat cards amounts to an admission by the government of the state’s failure to provide adequate and affordable treatment to the ailing citizens. Many government hospitals have better equipment and technology than is available at most private hospitals and clinics. But the state-run hospitals are often dysfunctional. There was a time when the patients were provided free treatment at least in an emergency but now even an aspirin tablet has to be purchased. Sehat cards entitle a citizen to free treatment up to a point from any of the private healthcare units registered with the insurance company that guarantees treatment at its registered clinics. Legally, the provincial and federal governments are bound to provide treatment to the entire citizenry. But after decades of operating in a lethargic manner most government clinics and hospitals are almost non-functional. If most of the citizens are to be treated at private hospitals through Sehat cards there will be an argument for reducing the allocations for public hospitals. Governments in countries like the United States do not provide free health facilities to their citizens. They contribute towards the cost of insurance.
Only one percent of the population in Pakistan is the income tax net. Out of them 40 percent file tax returns with zero taxable income. Women taxpayers are hardly 2 percent of the total tax-registered persons. Most of them are professors, doctors and IT professionals. Very few are in the corporate sector. They are on the corporate boards of the companies managed by their families. In the informal sector however women have a much larger presence. Tax concessions to those in the formal sector will thus have a nominal impact on government revenue. What women actually need is greater penetration in the formal economy. Pakistan is the only country in the world where women workers are a minority even in the apparel sector. By contrast, around 90 percent of workers in Bangladesh’s apparel sector are women.
The percentage of women workers is higher in Sri Lanka, China and Vietnam. Even in India 80 percent of apparel workers are women. We are talking about over 30 million women workers in Bangladesh textiles and 45 million in India’s textiles. In Pakistan’s apparel industry the share of women workers is only 20 percent. There is a need to remove hurdles that deter women from entering the vocations. The state should ensure a harassment-free, safe environment not only at the workplace but also during commutation from home to work and back. Women need safe employment opportunities and not petty tax concessions.
The capital gains tax on stocks has been lowered by 2.5 percent although the capital market was expecting a higher cut. This reduction will help the stock players accumulate more wealth. The daily turnover of shares at the stock market in Pakistan was quite high until last year. This year, it touched one billion shares on many occasions. Even an average earning of Rs 1 per share would mean a capital gain of Rs 1 billion. The brokers will be making Rs 25 million daily even on nominal average gain of Rs 1 per share. The capital market in Pakistan is nominally taxed. No wonder, leading stock brokers are among the richest people in Pakistan. They will continue to prosper. Successive governments in Pakistan have been obsessed with buoyancy in the capital markets. The rulers tend to argue that the economy is in good shape as the stock market is booming.
The stock market in Pakistan is rather limited. The number of listed companies has declined in recent years. There are few new listings. It is manipulated by big players. This is the reason that foreign investors do not stay long in this market. The market boomed when the country’s economy was in a deep recession during the pandemic year. The unemployment rate increased, the GDP of the country declined but the corporate profits soared to record levels. Under these circumstances there was no need to reduce the capital gains tax, particularly when the budget deficit is around Rs 3,000 billion.
The author is a writer and reporter for The News International